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The financial world has seen many business daredevils who have built their fortunes by taking significant risks in order to be successful. Bill Gates shaped Microsoft Corporation (NASDAQ: MSFT) by dropping out of college and betting on his unique take on the PC, while Henry Ford drastically slashed prices to meet demand for his popular T model.
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As these stories have reached iconic status, business people are starting to wonder where is the right place for risk and how to be resilient enough to overcome adversity and thrive.
There are thousands of unknown entrepreneurs who have risked everything and lost everything. Most of these risk takers ended up quitting for good, never to hear from them again.
But to answer the question of how to be risky and be successful, the answer falls somewhere in the middle. While it is true that a few business owners have succeeded by taking extreme risks and âbetting the farmâ on their plans, those who are truly successful learn to manage risk strategically.
We spoke with African businessman and CEO of SAVENDA Group, Clever Mpoha, the keys to a successful risk management strategy.
Tell us about the SAVENDA group and what is your risk management motto …
SAVENDA Group is a multinational conglomerate founded in my native Zambia, which I started with $ 1,000 and today is a $ 300 million annual logistics and supply management company. We then diversified into a number of other sectors such as agriculture, defense, manufacturing and printing.
The company is the product of good risk management as well as considerable risk taking, balanced by a risk management plan and a strong determination to succeed no matter what.
I firmly believe that entrepreneurship rewards risk takers. If you are one of those people who are afraid of losing money, then the business is not for you. We took a lot of risks along the way to build the business we have today.
How do you define risk management and what are the fundamentals?
Risk management is a process that helps entrepreneurs and business people assess all the risks associated with an investment. In addition, it prompts a reactive emergency plan that can better predict and respond to all possible outcomes.
There are three essential aspects to an effective risk management strategy: risk assessment, risk assessment and risk response.
What should investors consider when assessing risk?
To assess risk, investors should ask themselves the following questions: Will we be able to solve our community’s problems? Will the market accept our product or service? How tough is the competition in this area? If there is competition, how are we going to counter it?
It is absolutely essential. In addition, they should be aware of the budget to achieve market penetration and promote their products among the consumer base; also, the amount of money to cover unforeseen or unforeseen problems that might arise and derail their efforts.
Once the risk assessment has been completed, what is the next step?
Anyone who has satisfactorily covered the risk assessment process should also define
the level of their ârisk appetiteâ for their business. In other words, the level of risk they are prepared to face when pursuing their goals, before action is taken to reduce that risk.
Successful risk takers are quick to identify the likelihood of a particular risk. For example, what is the likelihood of a market collapse or the likelihood that current supply chain issues will affect their specific businesses – these are unexpected situations that can hurt any investment.
The impact and timing of such risks is also absolutely critical in determining the quantifiable losses in a certain event and for how long the business is going to be affected. All of these factors help investors define how to respond and identify potential opportunities.
How are investors supposed to react to risk in the management process?
There are many ways a business can respond after the risk assessment and risk management plan assessment steps. If an identified risk is likely to outweigh our short- and long-term benefits, the first option is to avoid the risk altogether.
In addition to avoiding risks, some can be mitigated by creating an effective control environment.
Accepting risks is also part of the process as it is inevitable that some risks must be accepted. The point is that there will be a certain level of risk with every new business activity involving the investment of money and resources.
You just have to accept the risks, but you also need to have contingency plans that will mitigate the potential fallout from a risk that goes wrong.
Transferring risk to a third party is also part of the risk response process. The most obvious is to purchase insurance for a particular situation whenever possible, as losses, property and human resources factors may be covered by the insurance.
Another example of a transfer could be when a business chooses to use leases to cover its transportation needs, which avoids the risk of depreciation associated with vehicular assets.
Finally, managing risk is about not putting all the eggs in one basket. It is common for farmers to grow a variety of crops rather than relying on a single crop for the growing season. If the wheat fails, maybe the soybeans will prosper and so on.